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Customer LoginsLuxury automotive leadership now a three-way contest
There is a scene in the movie, "The Right Stuff" (about the Project Mercury program in the early 1960s to send an American into space) in which the astronaut candidates are undergoing endurance testing. One of the tests involves blowing into a tube for as long as possible with just one breath. The camera zeroes in on two of the participants, the presumed front-runners, who are frantically competing with one another, watching each other every second and seemingly about to burst at the seams to outdo each other. Then, the camera shifts to a third candidate who is as calm and collected as could be. He is just sitting there and very nonchalantly blowing into a tube. He is the perfect picture of serenity; he is barely moving. This third person represents John Glenn, who went on to win the competition and become the first American astronaut to orbit the earth.
This situation reminds me to some degree of the current competition in the US new vehicle luxury market (see previous story: Luxury Deliveries Climb at Year End). BMW and Mercedes-Benz are intently focused on one another, following each other's every move. Their product programs closely mirror one another. Yet, Lexus continues to gain ground on both these makes and based on our data, is right back in the thick of the luxury sales race.
The make-level customer loyalty data for these three makes show that Lexus dropped dramatically on this measure in 2011 because of the recall crisis and natural disasters of that time, but recently has climbed back to within the same range as its German competitors. In fact, so far this year Lexus's loyalty is only about one point behind that of BMW (51.2% vs. 52.3%), though Lexus still trails Mercedes-Benz by six points.
Additional loyalty data, in the form of conquests and defections, further illustrate that Lexus is making progress versus its rivals. Lexus's conquest/defection ratios versus BMW and Mercedes-Benz, which measure inflow and outflow versus these two makes (a ratio of less than one means a net outflow), dropped precipitously in 2010 and 2011 for the same reasons mentioned above. But, as with overall make-level loyalty, Lexus is creeping back into the game. Its conquest/defection ratio with Mercedes-Benz has risen from a low of .27 in Q2 2011 to .66 in the first two months of this year. The improvement has been similar at BMW.
It is little wonder, given these improvements in Lexus's loyalty patterns, that it is gaining share as well.The new vehicle retail registration data show that Lexus's luxury share has been rising since the nadir in 2011, and the make now is closing in on the Germans. In fact, in the first two months of this year Lexus is number one in retail registrations with 16.68% of the luxury market versus 16.66 for Mercedes-Benz (less Sprinter) and 16.19 for BMW. These data are retail only and exclude fleet.
Ominously for the Germans, Lexus is doing all this before the launch of its small crossover, the NX, this fall. Up until now Lexus has been competing in the crossover sector with only the midsize RX and larger GX. The NX will give Lexus, for the first time, an entry in the ultra-hot compact luxury crossover space where the X3 and GLK currently compete.
Given the current positions of BMW, Lexus and Mercedes Benz in the premium market and the upcoming product activity, the 2014 luxury leadership contest will most likely be as close as ever.
Tom Libby is manager, loyalty practice and industry analysis, IHS Automotive
Posted 8 May 2014